• M1’s 2Q18 results were in line. 1H EBITDA/core EPS was 49%/49% of our FY18 forecasts.
• Mobile service revenue rose a robust 3.8% y-o-y (+3.8% q-o-q) in 2Q18. Fixed services revenue growth accelerated to 27.4% y-o-y (+15.0% q-o-q).
• EBITDA margin eased 1.9% pts y-o-y due to higher revenue contribution from fixed services.
• FY18F core EPS may rise by 7.6%, then fall by 23.1%/42.2% in FY19F/20F due to competition from TPG and 700MHz amortisation.
• Maintain HOLD with a 19% lower DCF-based target price of S$1.50 (WACC: 7.1%).

2Q18 Results Largely Met Expectations

M1’s 2Q18 EBITDA inched up 0.5% y-o-y (+2.9% q-o-q) as revenue growth was mostly offset by higher cost. 2Q18 core EPS grew 0.8% y-o-y (+2.8% q-o-q), in line with EBITDA.

Results were largely in line, with 1H18 EBITDA/core EPS forming 49%/49% of our FY18F forecasts (consensus: 51%/56%). A DPS of 5.2 Scts was declared (2Q17: 5.2 Scts), implying 68% payout.

M1 guided for 2H18 net profit to be lower y-o-y due to higher marketing cost and the impending entry of a new competitor.

Robust Mobile Service Revenue Growth Attributed to Postpaid

M1’s 2Q18 mobile service revenue (76% of total service revenue) rose a robust 3.8% y-o-y (+3.8% q-o-q). This was mainly due to postpaid revenue, which rose 5.7% y-o-y (+4.2% q-o-q), driven by take-up of SIM-only plans (both from M1 and Circles.Life subs).

Prepaid revenue continued to fall, down 11.1% y-o-y (steady q-o-q) from keener competition as its competitors gave retailers aggressive incentives to acquire subs. q-o-q, the prepaid subs decline accelerated to 63k while postpaid net adds picked up to 34k.

Source: CGS-CIMB Research - 30 Jul 2018